2021 (6) TMI 103 - HC - Income Tax

Court upholds assessment reopening, citing sufficient material and reasons.

PRAVINCHANDRA KHIMJI KHIMASIYA HUF Versus THE INCOME TAX OFFICER WARD 3 (1)

PRAVINCHANDRA KHIMJI KHIMASIYA HUF Versus THE INCOME TAX OFFICER WARD 3 (1) - TMI Issues Involved:1. Validity of the sanction under Section 151 of the Income Tax Act.2. Accuracy of the reasons for reopening the assessment.3. Existence of 'reason to believe' that income chargeable to tax has escaped assessment.4. Presence of a live nexus/link between the information received and material gathered.5. Permissibility of reopening for proving/fishing inquiry or investigation.6. Whether reopening is based on borrowed satisfaction.Issue-wise Detailed Analysis:1. Validity of the sanction under Section 151 of the Act:The writ applicant contended that the necessary sanction under Section 151 of the Act was not obtained before issuing the notice for reopening the assessment. However, the court found that the approval was duly provided to the assessee at the stage of passing the order of disposing of the objections. It was evident that the concerned authorities gave approval after due application of mind and expressed their satisfaction regarding the reasons recorded for reopening the assessment.2. Accuracy of the reasons for reopening the assessment:The writ applicant argued that the reasons for reopening were factually incorrect. The court examined the reasons recorded by the Assessing Officer (AO), which included information received from the Investigation Wing about the assessee's transactions in penny stocks. The AO noted that the assessee sold 3400 shares of Karma Ispat Limited, earning long-term capital gains, which were treated as penny stock transactions. The court found that the AO had made independent inquiries and gathered sufficient information to form a belief that income had escaped assessment.3. Existence of 'reason to believe' that income chargeable to tax has escaped assessment:The court reiterated that the AO must have reasons to believe that any income chargeable to tax has escaped assessment. In this case, the AO received information about the assessee's transactions in penny stocks, conducted inquiries, and formed a belief that the income had escaped assessment. The court emphasized that at the stage of issuing the notice, the AO is not required to have final evidence but only a reason to believe that income has escaped assessment. The court found that the AO had sufficient cause and justification to form such a belief.4. Presence of a live nexus/link between the information received and material gathered:The writ applicant argued that there was no live nexus between the information received and the material gathered. The court examined the reasons recorded and the affidavit in reply filed by the revenue, which clarified the information received from the Investigation Wing and the AO's independent inquiries. The court found that there was a live link between the material suggesting escapement of income and the information forming the basis of the AO's belief.5. Permissibility of reopening for proving/fishing inquiry or investigation:The writ applicant contended that reopening was not permissible for proving or fishing inquiry without specific findings of income escaping assessment. The court found that the AO had conducted independent inquiries and gathered sufficient information to form a belief that income had escaped assessment. The court emphasized that the AO's formation of belief is an administrative decision and does not require final adjudication of the matter at the stage of issuing the notice.6. Whether reopening is based on borrowed satisfaction:The writ applicant argued that the reopening was based on borrowed satisfaction without independent application of mind by the AO. The court examined the reasons recorded and the affidavit in reply, finding that the AO had independently applied his mind to the information and materials gathered. The court concluded that the AO was satisfied with the information and formed an opinion that income had escaped assessment.Conclusion:The court dismissed the writ application, holding that the revenue was justified in reopening the assessment. The court found that the AO had sufficient material and reasons to believe that income chargeable to tax had escaped assessment. The court emphasized that the AO's formation of belief is an administrative decision and does not require final adjudication at the stage of issuing the notice. The court also found that the necessary sanction under Section 151 was duly obtained, and there was a live link between the information received and the material gathered. Therefore, the reopening of the assessment was upheld, and the writ application was dismissed.